Putin's plan to get billions back from offshore havens gave the opposite effect

Some of the richest Russians ceased to be tax residents of the country to avoid the consequences of the law adopted in 2014, according to which they must declare their offshore assets, businessmen told Reuters about a practice that could withhold assets worth billions of dollars from Russian tax authorities.

More than a dozen interviews with Russian oligarchs, their managers, lawyers, current and former officials testify that a whole segment of Russian large assets is now in the hands of a new class of entrepreneurs - semi-exiles, who have kept the bridgehead at home, but are outside the tax system for residents, In the country less than 183 days a year.

"They can be scolded, they say they are unpatriotic, but the fact remains that the budget has lost something," said Vladimir Potanin, one of the richest people in Russia, about this practice.

Potanin himself, co-owner of the mining and metals giant Norilsk Nickel, remained a tax resident, but he knows that many of his colleagues have changed their tax residency due to the law on de-fogging, while retaining part of the investment in Russia.

Two other participants in the list of 100 richest businessmen of the Russian Federation, according to Forbes magazine, told Reuters that they had ceased to be tax residents in order not to obey the law. They spoke on condition of anonymity, because they were afraid to harm their business interests in the country.

Two other big businessmen did not say how they acted, but like Potanin, they know about the change of residence of many of their colleagues.

Official statistics on how many people have become tax non-residents of the Russian Federation since the adoption of the law, no. There are also no public data on the size of assets owned by these entrepreneurs.

Lawyers Egorov, Puginsky, Afanasiev and partners said that they conducted a study by talking with representatives of banks, consultants and beneficiaries of controlled foreign companies (CICs) - a total of almost three hundred wealthy Russians.

The bureau found that 40 percent of the CEC beneficiaries decided to abandon the status of the Russian tax resident and another 9 percent transferred assets to non-resident relatives.

The Law on De-Fiscalization obliges Russian taxpayers to disclose their CICs and gradually start paying taxes on undistributed profits of these companies.

In most Western countries, a similar practice is applied, but for Russia this is a big change, because earlier taxpayers could not declare their shares in foreign assets.

This law was adopted on the initiative of President Vladimir Putin, which in most cases was interpreted as a desire to make Russians fulfill their patriotic duty: to start paying taxes and investing in assets at home. Bypassing this law by refusing tax residency is completely legal, but those who did so said to Reuters that they understand that they went against it.

In response to Reuters' request, the Ministry of Economy of the Russian Federation said that the law on de-Fisheries is within the framework of global practice, and improving the investment climate and creating an enabling business environment are one of the government's key priorities.

The effect of implemented measures is seen in international assessments, in particular, in the improving position of Russia in the World Bank's Doing Business rating, Minek said.

The Kremlin refused to comment. The Ministry of Finance did not respond to Reuters's request until this article was published.

The Federal Tax Service (FTS), in response to the list of questions by Reuters, noted the increase in the number of tax disputes in terms of the concept of the actual recipient of income and the definition of the right to apply the norms of agreements on avoidance of double taxation. The Federal Tax Service did not answer the questions themselves and refused to comment further.

The value of exiles who refuse from the tax residency of the Russian Federation is reinforced by the fact that a significant part of the country's wealth is concentrated in the hands of a relatively small number of people.

Forbes magazine estimates the state of the 200 richest Russians at $ 460 billion, which is roughly equal to one-third of the nominal GDP of the Russian Federation.

"People are forced to make a decision - either to keep business in Russia, or to be citizens of the world and to withdraw their assets to offshore or other countries," said Konstantin Korishchenko, a former deputy chairman of the Central Bank of Russia.

A former official who has maintained close ties with the Kremlin and regularly talks with Russian oligarchs said that he estimated that about a third of the 500 Russian largest businessmen left the country in the last three years, in part because of this law.

"NOW IT IS IMPOSSIBLE"

Some interlocutors of Reuters said that apart from a general mistrust of state institutions, wealthy Russians also refuse tax residency out of fear that disclosure of their offshore companies to Russian tax authorities will lead to that this information will be used against them.

"The first thing entrepreneurs say about this is a great feeling of mistrust: distrust of everything, distrust of each other, distrust of the state," said the rector of the Skolkovo Moscow school Andrei Sharonov.

One of the leading Russian businessmen, sitting in a leather armchair in an office in one of the most prestigious districts of Moscow, said that he decided to relinquish residence with reluctance.

The need to spend most of the year outside the home causes inconvenience, but because of the investment climate in Russia, he and his partners are looking for buyers for their Russian business and are thinking of focusing on foreign assets, he said.

"There would be no law on CECs, I would be here and pay taxes here, but now it's impossible," he said.

For most of the year he spends his time in one of the countries of the European Union, where his family settled some time ago, or goes to meetings in other countries. This style of life, he said, has become routine for his colleagues since the adoption of the law: "Many people lived here and paid taxes, now they do not do it."

Another Russian billionaire told Reuters that he and some of his acquaintances had ceased to be Russian tax residents because of this law.

"We are all sitting in anticipation of what will be worse, and, understandably, in this situation, the desire to invest is declining," he added.

After three years of recession, the Russian economy is stabilizing, but has not yet returned to sustainable growth.

The law on de-inflation is part of a number of factors that discourage people from investing in Russia, said Chris Weafer, a senior partner at Macro-Advisory Ltd.

"Speaking about the increase in growth (GDP) to 4 percent, which Russian officials hope, is completely unrealistic without a sharp increase in foreign investment," Weafer said.

According to entrepreneurs who spoke with Reuters, the decision to follow the new rules involved significant deductions to lawyers, consultants for the audit of offshore assets and the calculation of taxes, as well as tons of paper work, after which they still carried the risk that they would pay additional taxes.

They are also concerned about the security of confidential information in the country, where CDs with inscriptions are located in the markets, that they contain tax databases.

Lawyers Egorov, Puginsky, Afanasiev and partners in their study said that almost two-thirds of respondents noted that they or their clients were confronted with leakage of confidential information from state bodies.

"No one wants to show money," said one of the largest Russian businessmen, who is also on the list of top 100 entrepreneurs of the Russian Federation under the Forbes version. He did not say whether he had ceased to be a tax resident.